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Asia’s fund selectors prefer home-based assets

Data collected by Last Word Research shows support for Asian bonds and equities, although concerns persist about the macroeconomic outlook.

The biggest change in regional fund selector sentiment in the first quarter was towards Asian local currency bonds, as the US Federal Reserve’s decision to end its procession of interest rate hikes looks set to curb the dollar’s rise.

There was an approximately 30% positive shift in attitude towards the asset class in terms of where Asia-based fund selectors intend to invest over the next 12 months.

The survey, which is conducted quarterly, asks fund selectors in Hong Kong, Singapore, Thailand and Malaysia about their long-term intentions for their asset allocations.

More than 40% plan of them to buy Asian domestic debt, and a similar proportion intend to allocate to Chinese and Asia ex-Japan equities.

Source: Last Word Research. First quarter 2019 compared with fourth quarter 2018.

Policymakers’ measures to stimulate the Chinese economy and expectations of a resolution to the Sino-US trade conflict seem to offset concerns about a broader global economic slowdown as the US economic cycle enters its final stage.

Sentiment towards absolute return, multi-asset and unconstrained bond funds is also more sanguine among Asia-based fund selectors. For instance, about 55% of them plan to gain exposure to hedge funds with absolute return mandates.

Clearly, the search for incremental yields and returns over conventional asset classes continues.

However, the overall economic outlook remains poor, and attitudes towards developed markets – especially European – are still negative.

Nevertheless, the despair of last quarter, when many fund selectors declared an intention to flee to cash and the safe-haven of short duration developed market government bonds, appears to have been alleviated.

The panic might not be over, but the Fed’s dovish stance signaled at the start of this year has likely had a calming influence: a notable change in Q1 2019 compared to Q4 2018 was the intention to get out of cash.

Part of the Mark Allen Group.